UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36505 Viper Energy Partners LP (Exact Name of Registrant As Specified in Its Charter) DE 46-5001985 (State or Other Jurisdiction of Incorporation or Organization) 500 West Texas ...

Viper Energy Partners LP (NASDAQ:VNOM) Q2 2023 Earnings Conference Call August 1, 2023 11:00 AM ET Company Participants Adam Lawlis - Vice President, Investor Relations Travis Stice - Chief Executive Officer Kaes Van't Hof - President Conference Call Participants Neal Dingmann - Truist Securities Operator Good day, and welcome to the Viper Energy Partners' Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a ...

Investor Presentation August 2023 Forward Looking Statements This presentation contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding Viper's: future performance; business strategy; future operations; estimates and projections of operating income, losses, costs and expenses, returns, cash flow ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 500 West Texas Ave. Suite 100 Midland, TX 79701 (Address of principal executive offices) (Zip code) DE 46-5001985 (I.R.S. Employer Identification Number) OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 FORM 10-Q Commission File Number 001-36505 Viper Energy Partners LP (Exact Name of Registrant As Specified in Its Charter) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCH ...

Financial Data and Key Metrics Changes - Viper Energy Partners reported a record oil production for the fourth consecutive quarter, highlighting strong free cash flow conversion despite commodity price volatility [5] - The company maintained over 80% conversion of operating cash flow into free cash flow during the quarter, significantly higher than the industry average of around 40% [5] - The drop-down transaction of certain royalty interests from Diamondback was valued at $75 million, with production from the acquired asset expected to increase from 300 barrels of oil per day to over 500 barrels per day for the full year 2023 [6] Business Line Data and Key Metrics Changes - The company initiated average production guidance for Q2 and Q3 2023, implying over 8% growth compared to Q1, with organic growth (excluding the drop-down acquisition) at over 5% [7] - Viper repurchased over 1 million units during the quarter, totaling over 11 million units repurchased since the program's inception, reflecting an average price of under $23 per unit [8] Market Data and Key Metrics Changes - The management indicated that the public markets are mispricing mineral interests relative to upstream assets, leading to a strategic shift in capital allocation towards acquiring more mineral interests [14] - The company noted that it is significantly undervalued relative to its net asset value (NAV) at mid-cycle prices, which are estimated at $60 per barrel [15] Company Strategy and Development Direction - Viper Energy aims to grow production without capital expenditures, leveraging its royalty business model to maintain low operating costs [5][9] - The management emphasized the importance of retaining flexibility in capital allocation between unit buybacks and variable dividends, adapting to market conditions [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential of the mineral business, indicating that the majority of the acquired acreage remains undeveloped, allowing for significant future growth [12] - The company anticipates that public operators will remain flat while private operators slow down, positioning Viper to benefit from increased activity with Diamondback [24] Other Important Information - The company completed $41 million in additional acquisitions, focusing on smaller deals and ground game acquisitions, while facing competition in the middle market [26][27] - Management highlighted the unique advantage of Viper in competing for larger mineral deals due to its size and scale [18] Q&A Session Summary Question: Future activity and undeveloped acreage - Management confirmed that most of the Diamondback operated position remains undeveloped, indicating significant growth potential over the next few years [12] Question: Capital allocation and shareholder return - Management discussed the importance of retaining flexibility in capital allocation, balancing between buybacks and dividends based on market conditions [14] Question: Market trends and acquisition strategy - Management acknowledged challenges in acquiring third-party minerals due to pricing but emphasized the focus on operated positions where they have better insight [33] Question: Role of Viper in the market and yield considerations - Management stated that the primary goal is to create value, and currently, the best approach is to repurchase units rather than distribute cash [35]

Investor Presentation May 2023 Forward Looking Statements This presentation contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding Viper's: future performance; business strategy; future operations; estimates and projections of operating income, losses, costs and expenses, returns, cash flow, a ...

[Glossary of Oil and Natural Gas Terms](index=3&type=section&id=Glossary%20of%20Oil%20and%20Natural%20Gas%20Terms) This section defines specialized terms related to oil and natural gas operations [Glossary of Certain Other Terms](index=5&type=section&id=Glossary%20of%20Certain%20Other%20Terms) This section defines specific terms used throughout the report [Cautionary Statement Regarding Forward-Looking Statements](index=6&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section warns readers that the Annual Report contains forward-looking statements subject to various risks and uncertainties, which could cause actual outcomes to differ materially from expectations [Summary](index=6&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements_Summary) This section warns readers that the Annual Report contains forward-looking statements subject to various risks and uncertainties, which could cause actual outcomes to differ materially from expectations. Key factors include commodity price volatility, geopolitical events, economic conditions, and regulatory changes - The report contains forward-looking statements that involve risks, uncertainties, and assumptions, and actual outcomes could differ materially from expressed expectations[13](index=13&type=chunk) - Key factors that could cause outcomes to differ include changes in supply and demand for oil, natural gas, and natural gas liquids, the impact of public health crises (e.g., COVID-19), actions by OPEC and Russia, changes in general economic conditions (e.g., interest rates, inflation), regional supply/demand factors, and federal/state legislative and regulatory initiatives (e.g., hydraulic fracturing, climate change)[14](index=14&type=chunk) - Other significant factors include physical and transition risks related to climate change, significant declines in commodity prices, changes in U.S. energy/environmental/monetary/trade policies, conditions in capital markets, changes in availability/cost of equipment/services, security threats (including cybersecurity), lack of adequate transportation/storage, and severe weather conditions[14](index=14&type=chunk) [PART I](index=8&type=section&id=PART%20I) This part covers the company's business, properties, and risk factors [Business and Properties](index=8&type=section&id=Items%201%20and%202.%20Business%20and%20Properties) Viper Energy Partners LP is a publicly traded Delaware limited partnership focused on owning and acquiring mineral and royalty interests in oil and natural gas properties, primarily in the Permian Basin. The company's objective is to provide attractive returns to unitholders by generating robust free cash flow, reducing debt, and maintaining a best-in-class cost structure. In 2022, the company made minor acquisitions and significant divestitures, including its entire Eagle Ford Shale position, while maintaining substantial proved reserves, predominantly oil-weighted, in the Permian Basin. The business model relies on operators (primarily Diamondback) for development, requiring no capital expenditure from Viper, and is supported by strategic acquisitions and hedging to manage commodity price risk - Viper Energy Partners LP is a publicly traded Delaware limited partnership focused on owning and acquiring mineral and royalty interests in oil and natural gas properties, primarily in the Permian Basin[20](index=20&type=chunk) - The primary business objective is to provide attractive returns to unitholders by focusing on business results, generating robust free cash flow, reducing debt, and protecting the balance sheet, while maintaining a best-in-class cost structure[21](index=21&type=chunk) 2022 Acquisitions and Divestitures | Type | Net Royalty Acres | Aggregate Net Price (Millions USD) | | :--- | :--- | :--- | | Acquisitions | 375 | $65.9 | | Divestitures (Midland Basin) | 325 | $29.3 | | Divestitures (Delaware Basin) | 93 | $29.9 | | Divestitures (Eagle Ford Shale) | 681 | $53.8 | Key Property and Production Data (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Gross Acres | 775,180 | | Net Royalty Acres | 26,315 | | Diamondback Operated Net Royalty Acreage | ~57% | | Total Producing Wells | 8,260 | | Diamondback Operated Wells | 2,558 | | Q4 2022 Net Production | 34,935 BOE/d | | FY 2022 Average Net Production | 33,649 BOE/d | | FY 2022 Royalty Income | $838.0 million | | FY 2021 Royalty Income | $501.5 million | | FY 2020 Royalty Income | $247.0 million | Estimated Net Proved Oil and Natural Gas Reserves (MBOE) | Category | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | :--- | | Proved Developed | 107,291 | 91,170 | 72,547 | | Proved Undeveloped | 41,609 | 36,718 | 26,845 | | **Total Proved Reserves** | **148,900** | **127,888** | **99,392** | | % Proved Developed | 72% | 71% | 73% | | Composition (2022) | 53% oil, 23% NGLs, 24% natural gas | | | - Viper's General Partner is 100% owned by Diamondback Energy, Inc., which also beneficially owns approximately **56% of Viper's total units outstanding**, providing a strong incentive for Diamondback to offer additional mineral and royalty interests to Viper[28](index=28&type=chunk) - Key business strategies include capitalizing on the development of underlying mineral interests by operators (without capital expenditure from Viper), leveraging the relationship with Diamondback for joint acquisitions, and opportunistically acquiring mineral or other interests from Diamondback[31](index=31&type=chunk) - Competitive strengths include a high-grade asset base, conservative capital structure, commodity price hedging, an oil-rich resource base in the Permian Basin, a sustainable high-margin business unburdened by capital expenses, an experienced management team, and a favorable/stable operating environment[33](index=33&type=chunk) Average Sales Prices and Hedged Prices | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Oil (per Bbl) | $94.02 | $65.51 | $36.58 | | Natural gas (per Mcf) | $5.24 | $3.60 | $0.79 | | Natural gas liquids (per Bbl) | $34.47 | $28.66 | $10.88 | | Combined (per BOE) | $68.23 | $48.88 | $25.41 | | Oil, hedged ($/Bbl) | $92.85 | $50.25 | $32.00 | | Natural gas, hedged ($/Mcf) | $4.20 | $3.60 | $0.02 | | Natural gas liquids ($/Bbl) | $34.47 | $28.66 | $10.88 | | Combined price, hedged ($/BOE) | $66.21 | $39.86 | $21.71 | - As of December 31, 2022, the company owned an average **3.8% net revenue interest** in **8,260 gross productive wells**, with **34 gross wells** in process of being drilled by Diamondback[50](index=50&type=chunk) Acreage by Basin (as of Dec 31, 2022) | Basin | Gross Royalty Acreage | Net Royalty Acreage | | :--- | :--- | :--- | | Delaware | 502,003 | 14,944 | | Midland | 273,177 | 11,371 | | **Total acreage** | **775,180** | **26,315** | - The oil and natural gas industry is intensely competitive, and Viper competes with companies that may have greater resources, potentially affecting its ability to acquire properties and sustain operations during low commodity prices[53](index=53&type=chunk) - The business is subject to seasonal demand fluctuations for oil and natural gas, and seasonal weather conditions can limit drilling and production activities[55](index=55&type=chunk) - Viper Energy Partners LP does not have any employees; all individuals managing the business, including executive officers, are employed by Diamondback[94](index=94&type=chunk) [Regulation](index=16&type=section&id=Regulation) The company's oil and natural gas operations are subject to extensive federal, state, and local regulations, including environmental laws, waste handling, water discharges, air emissions, and climate change initiatives. These regulations can increase operating costs and impact business activities. Recent legislative changes like the Inflation Reduction Act of 2022 introduce new costs and incentives that could accelerate the transition to a low-carbon economy, potentially reducing demand for fossil fuels - Oil and natural gas operations are subject to various types of legislation, regulation, and other legal requirements enacted by governmental authorities, which are under constant review for amendment or expansion, increasing the cost of doing business[57](index=57&type=chunk) - Environmental laws and regulations govern discharges into the environment, waste handling (RCRA), remediation of hazardous substances (CERCLA), and water discharges (Clean Water Act, Oil Pollution Act), often imposing strict liability and substantial penalties for non-compliance[58](index=58&type=chunk)[60](index=60&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - Air emissions are regulated by the federal Clean Air Act and comparable state laws, requiring permits and imposing controls on pollutants, which can increase compliance costs and delay project development[68](index=68&type=chunk) - Climate change initiatives, including the Inflation Reduction Act of 2022 (IRA), provide incentives for renewable energy and impose a methane emissions charge (starting at **$900/ton in 2024**, rising to **$1,500/ton by 2026**), which could accelerate the transition away from fossil fuels, decrease demand/prices, and increase operating costs[69](index=69&type=chunk)[109](index=109&type=chunk) - Hydraulic fracturing is regulated by state oil and natural gas commissions, but federal agencies (EPA) also assert authority, with new rules on wastewater discharge and air emissions (e.g., methane, VOCs). State regulations, particularly in Texas, address chemical disclosure, well casing, and induced seismic activity from disposal wells, potentially increasing operating costs and limiting drilling[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk)[80](index=80&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks that could materially and adversely affect Viper Energy Partners LP's business, financial condition, results of operations, and cash available for distribution. These risks include commodity price volatility, geopolitical events, regulatory changes, dependence on operators, and financial and governance risks related to its partnership structure and relationship with Diamondback - The business is highly susceptible to volatility in oil and natural gas markets, with NYMEX WTI ranging from **$(37.63) to $123.70 per Bbl** and NYMEX Henry Hub from **$1.48 to $9.68 per MMBtu** between 2020 and 2022. Lower prices could lead to impairment charges, reduced borrowing capacity, and decreased cash flows[98](index=98&type=chunk)[100](index=100&type=chunk) - Geopolitical events (e.g., war in Ukraine), the COVID-19 pandemic, rising interest rates, global supply chain disruptions, and inflation concerns contribute to economic and pricing volatility, impacting production levels and the company's financial outlook[98](index=98&type=chunk)[99](index=99&type=chunk)[101](index=101&type=chunk)[104](index=104&type=chunk) - The Inflation Reduction Act of 2022 (IRA) and other climate change initiatives could accelerate the transition to a low-carbon economy, reducing demand for hydrocarbons and imposing new costs, such as a methane emissions charge, which may adversely affect the business and access to capital[107](index=107&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - The company's cash distribution policy limits cash available for reinvestment and acquisitions, making it reliant on external financing. The policy can be modified or revoked at any time, leading to significant quarterly variations or even zero distributions[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) - Significant dependence on a small number of operators (primarily Diamondback) for development and production on its mineral interests. A reduction in drilling, inefficient operations, or financial difficulties of operators could adversely affect growth and results[119](index=119&type=chunk)[120](index=120&type=chunk) - Approximately **28% of total estimated proved reserves** as of December 31, 2022, are proved undeveloped (PUD) reserves, which require significant capital expenditures and successful drilling by operators. Delays or increased costs could reduce future net revenues or lead to reclassification of reserves[121](index=121&type=chunk) - The company's properties are geographically concentrated in the Permian Basin, making it vulnerable to regional supply/demand factors, governmental regulations, infrastructure constraints, and extreme weather conditions[124](index=124&type=chunk)[125](index=125&type=chunk)[127](index=127&type=chunk) - The full cost method of accounting for oil and natural gas properties means that declining commodity prices could necessitate future impairment charges, negatively affecting results of operations[132](index=132&type=chunk)[134](index=134&type=chunk) - The company's indebtedness, including restrictive covenants in its revolving credit facility and senior notes, may limit its ability to respond to market changes, pursue business opportunities, or fund capital expenditures. A significant reduction in the borrowing base could negatively impact liquidity[141](index=141&type=chunk)[142](index=142&type=chunk)[144](index=144&type=chunk) - Diamondback owns and controls the General Partner, creating potential conflicts of interest where the General Partner may favor its own interests over those of Viper's unitholders. The partnership agreement replaces traditional fiduciary duties with contractual standards[149](index=149&type=chunk)[152](index=152&type=chunk) - Viper is treated as a corporation for U.S. federal income tax purposes, subjecting it to a **21% corporate tax rate**, which reduces distributable cash flow. Distributions to common unitholders may be taxable as ordinary dividend income[177](index=177&type=chunk)[178](index=178&type=chunk) [Unresolved Staff Comments](index=38&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[183](index=183&type=chunk) [Legal Proceedings](index=38&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine litigation and disputes but believes none will have a material adverse effect on its financial condition, cash flows, or results of operations - The company is, from time to time, involved in routine litigation or subject to disputes or claims related to its business activities[184](index=184&type=chunk) - Management believes that none of the pending litigation, disputes, or claims against the company, if decided adversely, will have a material adverse effect on its financial condition, cash flows, or results of operations[184](index=184&type=chunk) [Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[185](index=185&type=chunk) [PART II](index=39&type=section&id=PART%20II) This part addresses market information, financial condition, and controls [Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities](index=39&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Unitholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Viper Energy Partners LP's common units are listed on the Nasdaq Global Select Market. The company has a cash distribution policy, effective Q3 2022, which includes a base and variable distribution, taking into account its common unit repurchase program. The board updated the policy in November 2022 to exclude one-time payments from available cash calculations. The company actively repurchased common units in Q4 2022, with a significant amount remaining authorized under its repurchase program - Viper Energy Partners LP's common units are listed on the Nasdaq Global Select Market under the symbol "VNOM". As of February 17, 2023, there were **10 holders of record** of its common units[188](index=188&type=chunk) - The General Partner's board of directors established a cash distribution policy, effective Q3 2022, consisting of a base and variable distribution that considers capital returned via the common unit repurchase program. The policy was updated in November 2022 to exclude lease bonus payments and other one-time, non-recurring payments from available cash calculations[189](index=189&type=chunk)[204](index=204&type=chunk) Common Unit Repurchase Activity (Q4 2022) | Period | Total Number of Units Purchased | Average Price Paid Per Unit ($) | Total Number of Units Purchased as Part of Publicly Announced Plan | | :--- | :--- | :--- | :--- | | October 1, 2022 - October 31, 2022 | 21,800 | 30.01 | 21,800 | | November 1, 2022 - November 30, 2022 | 597,500 | 33.06 | 597,500 | | December 1, 2022 - December 31, 2022 | 357,996 | 31.44 | 357,996 | | **Total** | **977,296** | **32.40** | **977,296** | - On July 26, 2022, the board of directors increased the authorization under the common unit repurchase program from **$250.0 million to $750.0 million**. As of December 31, 2022, approximately **$529.4 million** remained available for repurchases[193](index=193&type=chunk) [Item 6. [Reserved]](index=39&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - This item is reserved[195](index=195&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Viper Energy Partners LP, a publicly traded Delaware limited partnership, reported significant financial improvements for the year ended December 31, 2022, driven by higher commodity prices and increased production volumes. Royalty income surged by $336.4 million, and net income attributable to Viper Energy Partners LP increased by $93.7 million. The company actively managed its portfolio through acquisitions and divestitures, repurchased debt and common units, and maintained a strong liquidity position. Critical accounting estimates, particularly for proved reserves and income taxes, involve significant judgment due to market volatility - Viper Energy Partners LP operates in one reportable segment, focused on mineral and royalty interests in the Permian Basin[197](index=197&type=chunk) - Commodity prices for oil, natural gas, and natural gas liquids remained volatile in 2022 due to global economic activity, geopolitical events (e.g., war in Ukraine), and inflation. No impairment was recorded in 2022 due to improved prices, but future impairments are possible if prices decline[199](index=199&type=chunk)[200](index=200&type=chunk) 2022 Acquisitions and Divestitures Summary | Activity | Net Royalty Acres | Aggregate Net Price (Millions USD) | | :--- | :--- | :--- | | Acquisitions | 375 | $65.9 | | Divestitures (Midland Basin) | 325 | $29.3 | | Divestitures (Delaware Basin) | 93 | $29.9 | | Divestitures (Eagle Ford Shale) | 681 | $53.8 | | **Resulting Net Royalty Acres (Dec 31, 2022)** | **26,315** | | - The company repurchased **$49.6 million principal amount** of outstanding Notes for **$49.0 million cash** during 2022[205](index=205&type=chunk) - Diamondback-operated full year 2023 oil production is expected to increase by approximately **8%** compared to 2022, driven by continued development focus in high concentration royalty acreage, primarily in the Northern Midland Basin[206](index=206&type=chunk) Key Financial Results (Years Ended Dec 31, 2022 vs. 2021) | Metric (Thousands USD) | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Royalty income | $837,976 | $501,534 | +$336,442 | | Lease bonus income | $27,791 | $2,763 | +$25,028 | | Total operating income | $866,467 | $504,917 | +$361,550 | | Total costs and expenses | $185,985 | $143,345 | +$42,640 | | Income from operations | $680,482 | $361,572 | +$318,910 | | Net income attributable to Viper Energy Partners LP | $151,673 | $57,939 | +$93,734 | Production Data and Average Sales Prices (Years Ended Dec 31, 2022 vs. 2021) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Combined volumes (MBOE) | 12,282 | 10,260 | +2,022 (+20%) | | Average daily combined volumes (BOE/d) | 33,649 | 28,110 | +5,539 | | Average Oil Price ($/Bbl) | $94.02 | $65.51 | +$28.51 | | Average Natural Gas Price ($/Mcf) | $5.24 | $3.60 | +$1.64 | | Average NGL Price ($/Bbl) | $34.47 | $28.66 | +$5.81 | | Combined Average Price ($/BOE) | $68.23 | $48.88 | +$19.35 | Average Costs Per BOE (Years Ended Dec 31, 2022 vs. 2021) | Metric ($/BOE) | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Production and ad valorem taxes | $4.59 | $3.17 | +$1.42 | | General and administrative - cash component | $0.59 | $0.65 | -$0.06 | | Total operating expense - cash | $5.18 | $3.82 | +$1.36 | | Depletion | $9.86 | $10.04 | -$0.18 | - Royalty income increased by **$336.4 million** in 2022, primarily due to **$243.1 million** from strong commodity prices and **$93.3 million** from a **20% increase in production volumes**, largely from new wells and the Swallowtail Acquisition[216](index=216&type=chunk)[217](index=217&type=chunk) - The company recorded an income tax benefit of **$32.7 million** in 2022, compared to an expense of **$1.5 million** in 2021, primarily due to a reduction in the valuation allowance on deferred tax assets[224](index=224&type=chunk) - As of December 31, 2022, liquidity totaled approximately **$366.2 million**, consisting of **$18.2 million** in cash and cash equivalents and **$348.0 million** available under the Operating Company's revolving credit facility[225](index=225&type=chunk) Cash Flow Data (Years Ended Dec 31, 2022 vs. 2021) | Metric (Thousands USD) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $699,796 | $307,114 | | Net cash provided by (used in) investing activities | $47,571 | $(281,176) | | Net cash provided by (used in) financing activities | $(768,636) | $(5,611) | | Net increase (decrease) in cash and cash equivalents | $(21,269) | $20,327 | - Net cash used in financing activities in 2022 was primarily for distributions (**$416.9 million**), common unit repurchases (**$150.6 million**), and net debt repayment (**$152.0 million** on credit facility, **$49.0 million** on Notes)[232](index=232&type=chunk) - Critical accounting estimates include royalty income and revenue recognition, oil and natural gas accounting and reserves (full cost method, proved reserve estimation), derivative instruments (fair value measurement), and income taxes (deferred tax assets, valuation allowances)[244](index=244&type=chunk)[245](index=245&type=chunk)[249](index=249&type=chunk)[252](index=252&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=51&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses Viper Energy Partners LP's exposure to market risks, primarily commodity price risk and interest rate risk, and how it manages these exposures through derivative instruments and financial policies - The company's major market risk exposure is in the pricing applicable to the oil and natural gas production of its operators, which is historically volatile and unpredictable due to global supply/demand, geopolitical events, and economic conditions[258](index=258&type=chunk) - Viper uses fixed price swap contracts, fixed price basis swap contracts, and costless collars to reduce price volatility associated with its royalty income, exposing itself to credit risk and market risk[259](index=259&type=chunk) - As of December 31, 2022, the company had a net asset derivative position of **$9.8 million**. A **10% increase** in forward curves would increase this by **$2.8 million**, while a **10% decrease** would reduce it by **$2.5 million**[260](index=260&type=chunk) - The company is subject to credit risk due to the concentration of royalty income and receivables with a limited number of significant purchasers (two accounted for over **10% of income** in 2022)[261](index=261&type=chunk) - The company is exposed to interest rate risk on borrowings under the Operating Company's revolving credit facility, which bears interest at a floating rate (tied to SOFR). The weighted average interest rate on borrowings was **4.22%** during 2022[262](index=262&type=chunk) [Financial Statements and Supplementary Data](index=52&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item refers to the consolidated financial statements and supplementary data, which are presented starting on page F-1 of the report - The information required by this item appears beginning on page F-1 of this report[263](index=263&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=52&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with accountants on accounting and financial disclosure matters - There are no changes in and disagreements with accountants on accounting and financial disclosure[264](index=264&type=chunk) [Controls and Procedures](index=52&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, under the direction of the CEO and CFO of the General Partner, evaluated the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting as of December 31, 2022, concluding they were effective. The independent registered public accounting firm also issued an unqualified opinion on the effectiveness of internal control over financial reporting - Management, under the direction of the Chief Executive Officer and Chief Financial Officer of the General Partner, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[266](index=266&type=chunk) - Management conducted an evaluation of the effectiveness of the Partnership's internal control over financial reporting and determined that it maintained effective internal control over financial reporting as of December 31, 2022[269](index=269&type=chunk)[270](index=270&type=chunk) - Grant Thornton LLP, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of the Partnership's internal control over financial reporting at December 31, 2022[272](index=272&type=chunk)[273](index=273&type=chunk) [Other Information](index=55&type=section&id=Item%209B.%20Other%20Information) This item reports that there is no other information required to be disclosed - There is no other information to disclose[280](index=280&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.](index=55&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections.) This item is not applicable to the company - This item is not applicable[281](index=281&type=chunk) [PART III](index=56&type=section&id=PART%20III) This part details corporate governance, executive compensation, and related party transactions [Directors, Executive Officers and Corporate Governance](index=56&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Viper Energy Partners LP is managed by the board of directors and executive officers of its General Partner, all of whom are employed by Diamondback Energy, Inc. The board, comprising six directors with five independent members, oversees the company's operations and risk management. It has established an audit committee and a conflicts committee to ensure financial integrity and address potential conflicts of interest. The company operates under a Code of Business Conduct and Ethics and reimburses its General Partner and affiliates for expenses - Viper Energy Partners LP is managed and operated by the board of directors and executive officers of its General Partner, who are employed by Diamondback Energy, Inc[284](index=284&type=chunk)[286](index=286&type=chunk) - Diamondback owns and controls the General Partner, giving it the right to appoint all members of the board of directors, including independent directors[285](index=285&type=chunk) Executive Officers and Directors of General Partner (as of Feb 1, 2023) | Name | Position | | :--- | :--- | | Travis D. Stice | Chief Executive Officer and Director | | Kaes Van't Hof | President | | Teresa L. Dick | Chief Financial Officer, Executive Vice President and Assistant Secretary | | Matt Zmigrosky | Executive Vice President, General Counsel and Secretary | | Steven E. West | Chairman of the Board and Director | | W. Wesley Perry | Director | | Spencer D. Armour | Director | | James L. Rubin | Director | | Frank C. Hu | Director | - The board of directors of the General Partner has **six directors**, **five of whom are independent** as defined by Nasdaq and the Exchange Act (Steven E. West, W. Wesley Perry, James L. Rubin, Spencer D. Armour, and Frank C. Hu)[303](index=303&type=chunk) - The board's leadership structure, with Steven E. West as Chairman (also a Diamondback director), leverages his industry knowledge and facilitates communication. The board, assisted by its committees, is responsible for risk oversight[305](index=305&type=chunk)[306](index=306&type=chunk) - The board has an Audit Committee (W. Wesley Perry, Spencer D. Armour, Frank C. Hu) and a Conflicts Committee (W. Wesley Perry, Spencer D. Armour, Frank C. Hu). All audit committee members are independent and meet experience standards, with Mr. Perry and Mr. Hu identified as "audit committee financial experts"[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk) - The Partnership's agreement requires reimbursement of the General Partner and its affiliates for all expenses incurred on its behalf, with no set limit, which reduces cash available for distribution[316](index=316&type=chunk) [Executive Compensation](index=62&type=section&id=Item%2011.%20Executive%20Compensation) Viper Energy Partners LP has no direct officers or employees; executive officers of its General Partner are employed and compensated by Diamondback Energy, Inc. The company reimburses Diamondback for allocated compensation expenses. A Long-Term Incentive Plan (LTIP) is in place to attract and retain key individuals, with awards approved by the General Partner's board. Non-employee directors receive cash retainers and annual equity awards of phantom units - Viper Energy Partners LP has no officers; its General Partner has sole responsibility for conducting business, and its executive officers are employed and compensated by Diamondback Energy, Inc[317](index=317&type=chunk)[318](index=318&type=chunk) - The Long-Term Incentive Plan (LTIP) provides awards (e.g., unit options, phantom units) to employees, officers, consultants, and directors of the General Partner and its affiliates to align interests with unitholders and encourage long-term performance[320](index=320&type=chunk)[321](index=321&type=chunk) - In 2022, phantom units were granted to non-employee directors under the LTIP, but no grants were made to executive officers[322](index=322&type=chunk) - Non-employee directors receive an annual cash retainer of **$60,000**, plus additional payments for committee service, and an annual equity award of phantom units valued at **$100,000**, vesting on the first anniversary of the grant date[329](index=329&type=chunk) Non-Employee Director Compensation (2022) | Name | Fees Earned or Paid in Cash ($) | Unit Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Spencer D. Armour | 75,000 | 100,254 | 175,254 | | Rosalind Redfern Grover | 75,000 | 100,254 | 175,254 | | Frank C. Hu | 43,350 | 100,254 | 143,604 | | W. Wesley Perry | 85,000 | 100,254 | 185,254 | | James L. Rubin | 60,000 | 100,254 | 160,254 | | Steven E. West | 60,000 | 100,254 | 160,254 | - The company believes that time-based vesting unit options granted under the LTIP drive a long-term perspective and reduce the likelihood of executive officers taking unreasonable risks[333](index=333&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters](index=65&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Unitholder%20Matters) This section details the beneficial ownership of common units and Class B units by the General Partner, its directors and executive officers, and major unitholders. Diamondback Energy, Inc. is the largest beneficial owner, holding approximately 56% of total units outstanding, including all Class B units. The company also provides information on securities authorized for issuance under its equity compensation plans Beneficial Ownership of Common Units by Officers and Directors (as of Feb 1, 2023) | Name of Beneficial Owner | Common Units Beneficially Owned | Percentage of Common Units Beneficially Owned | | :--- | :--- | :--- | | Diamondback Energy, Inc. | 731,500 | 1.0% | | Travis D. Stice | 106,169 | * | | Kaes Van't Hof | 35,362 | * | | Teresa L. Dick | 11,540 | * | | Matt Zmigrosky | 4,253 | * | | Steven E. West | 18,290 | * | | W. Wesley Perry | 64,245 | * | | Spencer D. Armour | 28,217 | * | | All directors and executive officers as a group (10 persons) | 268,076 | * | * Less than 1% Holdings of Major Unitholders (as of Feb 1, 2023) | Name of Beneficial Owner | Common Units | Class B Units | Percentage of Class (Common) | Percentage of Class (Class B) | | :--- | :--- | :--- | :--- | :--- | | Diamondback Energy, Inc. | 731,500 | 90,709,946 | 1.0% | 100% | | Wellington Management Group LLP | 11,024,380 | — | 15.1% | — | | Blackstone, Inc. | 9,482,228 | — | 13.0% | — | | Santa Elena Minerals, LP | 5,152,124 | — | 7.1% | — | - Diamondback Energy, Inc. beneficially owned approximately **56%** of the Partnership's total units outstanding as of December 31, 2022[405](index=405&type=chunk) Securities Authorized For Issuance Under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :--- | :--- | :--- | :--- | | Long Term Incentive Plan | 113,494 | $— | 8,535,945 | - The General Partner may transfer its interest or its owner may transfer membership interests in the General Partner to a third party without unitholder consent, effectively permitting a "change of control"[347](index=347&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=69&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section outlines various agreements and transactions between Viper Energy Partners LP and its affiliates, primarily Diamondback Energy, Inc., including expense reimbursements, distributions, registration rights, tax sharing, lease bonus payments, and surface use charges. It also describes the procedures for reviewing and approving related person transactions and confirms director independence - The Partnership is required to reimburse its General Partner and affiliates, including Diamondback, for all expenses incurred on its behalf, with no limit on the amount. Reimbursements totaled **$3.7 million** for the year ended December 31, 2022[350](index=350&type=chunk) - Diamondback received aggregate distributions of **$234.1 million** from the Partnership and the Operating Company during 2022[351](index=351&type=chunk) - An amended and restated registration rights agreement grants Diamondback registration rights for common units, including those exchangeable from OpCo and Class B units[353](index=353&type=chunk)[354](index=354&type=chunk) - Under a tax sharing agreement, the Partnership reimburses Diamondback for its share of state and local income and other taxes when included in Diamondback's combined or consolidated tax return. **$0.9 million** was recognized in 2022[355](index=355&type=chunk) - Diamondback paid the Partnership **$23.4 million** in lease bonus payments for new leases and **$0.6 million** for surface use charges and right-of-way easements during 2022[356](index=356&type=chunk)[357](index=357&type=chunk) - The board of directors of the General Partner has adopted policies for the review, approval, and ratification of transactions with related persons, with potential conflicts of interest addressed by disinterested directors or a conflicts committee[359](index=359&type=chunk)[360](index=360&type=chunk) - Five of the six directors on the General Partner's board are independent, meeting Nasdaq and Exchange Act standards[303](index=303&type=chunk)[362](index=362&type=chunk) [Principal Accountant Fees and Services](index=71&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section details the fees paid to Grant Thornton LLP for independent auditing, tax, and related services for the years ended December 31, 2022, and 2021, all of which were pre-approved by the audit committee - Grant Thornton LLP was selected as the independent registered public accounting firm to audit the consolidated financial statements[363](index=363&type=chunk) Aggregate Grant Thornton LLP Fees (Thousands USD) | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $386 | $331 | | Audit-related fees | $0 | $84 | | Tax fees | $0 | $0 | | All other fees | $0 | $0 | | **Total** | **$386** | **$415** | - All services reported in the audit, audit-related, tax, and all other fees categories for 2022 and 2021 were pre-approved by the audit committee[363](index=363&type=chunk) [PART IV](index=72&type=section&id=PART%20IV) This part lists exhibits and financial statement schedules [Exhibits and Financial Statement Schedules](index=72&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This item provides a comprehensive list of financial statements, financial statement schedules, and exhibits included in the Annual Report on Form 10-K, detailing various agreements, certificates, and reports - The report includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statement of Unitholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[367](index=367&type=chunk) - Financial statement schedules have been omitted because they are either not required, not applicable, or the information is included in the Partnership's consolidated financial statements and related notes[368](index=368&type=chunk) - A detailed list of exhibits is provided, including various agreements (e.g., Purchase and Sale Agreement, Partnership Agreement, Credit Agreement, Tax Sharing Agreement, Registration Rights Agreement), certifications (CEO, CFO), and audit reports (Ryder Scott Company, L.P.'s Audit Report on Reserves)[369](index=369&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk) [Item 16. Form 10-K Summary](index=74&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that a Form 10-K Summary is not included in this report - A Form 10-K Summary is not included in this report[372](index=372&type=chunk) [Signatures](index=75&type=section&id=Signatures) This section contains the official signatures for the annual report [Summary](index=75&type=section&id=Signatures_Summary) This section contains the required signatures for the Annual Report on Form 10-K, including those from the Chief Executive Officer, Chief Financial Officer, and directors of Viper Energy Partners LP's General Partner, dated February 23, 2023 - The Annual Report is signed by Travis D. Stice (Chief Executive Officer and Director), Teresa L. Dick (Chief Financial Officer), Steven E. West (Chairman of the Board and Director), W. Wesley Perry (Director), Spencer D. Armour (Director), James L. Rubin (Director), and Frank C. Hu (Director)[378](index=378&type=chunk) - The report was signed on February 23, 2023[377](index=377&type=chunk)[378](index=378&type=chunk) [Report of Independent Registered Public Accounting Firm](index=76&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) This section presents the auditor's opinion on the financial statements and internal controls [Summary](index=76&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm_Summary) Grant Thornton LLP, the independent registered public accounting firm, issued an unqualified opinion on Viper Energy Partners LP's consolidated financial statements for the period ended December 31, 2022, and on the effectiveness of its internal control over financial reporting. The report also highlights critical audit matters, including the estimation of proved reserves and future taxable income, which required subjective and complex auditor judgment - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements of Viper Energy Partners LP as of and for the year ended December 31, 2022[379](index=379&type=chunk) - The firm also issued an unqualified opinion on the effectiveness of the Partnership's internal control over financial reporting as of December 31, 2022, based on criteria established by COSO[380](index=380&type=chunk) - Critical audit matters identified include the estimation of proved reserves as it relates to the calculation and recognition of depletion expense, and the estimation of future taxable income as it relates to the partial release of the deferred tax asset valuation allowance. Both involved a high degree of subjectivity and complex auditor judgment[383](index=383&type=chunk)[384](index=384&type=chunk)[388](index=388&type=chunk) [Consolidated Financial Statements](index=79&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's primary financial statements [Consolidated Balance Sheets](index=79&type=section&id=Viper%20Energy%20Partners%20LP%20Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets present Viper Energy Partners LP's financial position as of December 31, 2022, and 2021. Key figures show a slight decrease in total assets and liabilities, with a notable reduction in long-term debt. Total equity increased, driven by non-controlling interest, while Viper Energy Partners LP's unitholders' equity saw a decrease Consolidated Balance Sheet Highlights (Thousands USD) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $118,620 | $111,149 | | Property, net | $2,750,273 | $2,920,115 | | Total assets | $2,920,373 | $3,034,021 | | Total current liabilities | $21,946 | $24,466 | | Long-term debt, net | $576,895 | $776,727 | | Total liabilities | $598,848 | $801,193 | | Total Viper Energy Partners LP unitholders' equity | $690,659 | $814,821 | | Non-controlling interest | $1,630,866 | $1,418,007 | | Total equity | $2,321,525 | $2,232,828 | [Consolidated Statements of Operations](index=80&type=section&id=Viper%20Energy%20Partners%20LP%20Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations show Viper Energy Partners LP's financial performance for the years ended December 31, 2022, 2021, and 2020. The company experienced significant growth in operating income and net income in 2022, largely reversing a net loss from 2020. Net income attributable to Viper Energy Partners LP increased substantially, and basic and diluted earnings per common unit improved significantly Consolidated Statements of Operations Highlights (Thousands USD, except per unit amounts) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total operating income | $866,467 | $504,917 | $250,626 | | Total costs and expenses | $185,985 | $143,345 | $197,712 | | Income (loss) from operations | $680,482 | $361,572 | $52,914 | | Total other expense, net | $(58,131) | $(103,374) | $(103,861) | | Net income (loss) | $655,004 | $256,677 | $(193,413) | | Net income (loss) attributable to Viper Energy Partners LP | $151,673 | $57,939 | $(192,304) | | Basic EPS | $2.00 | $0.85 | $(2.84) | | Diluted EPS | $2.00 | $0.85 | $(2.84) | [Consolidated Statement of Unitholders' Equity](index=81&type=section&id=Viper%20Energy%20Partners%20LP%20Statement%20of%20Consolidated%20Unitholders%27%20Equity) The Consolidated Statement of Unitholders' Equity provides a detailed breakdown of changes in equity for Viper Energy Partners LP for the years ended December 31, 2022, 2021, and 2020. It shows the impact of unit-based compensation, distributions to public and Diamondback, common units issued for acquisitions, and repurchases of units, alongside net income (loss) and changes in non-controlling interest Consolidated Unitholders' Equity Highlights (Thousands USD) | Metric | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | :--- | | Balance at beginning of period | $2,232,828 | $1,860,833 | $2,185,420 | | Unit-based compensation | $1,304 | $1,172 | $1,272 | | Common units issued for acquisition | $0 | $336,872 | $0 | | Distributions to public | $(182,470) | $(75,749) | $(45,630) | | Distributions to Diamondback | $(234,103) | $(100,685) | $(62,282) | | Repurchased units as part of unit buyback | $(150,593) | $(45,999) | $(24,026) | | Net income (loss) | $655,004 | $256,677 | $(193,413) | | Balance at end of period | $2,321,525 | $2,232,828 | $1,860,833 | [Consolidated Statements of Cash Flows](index=82&type=section&id=Viper%20Energy%20Partners%20LP%20Consolidated%20Statements%20of%20Cash%20Flows) The Consolidated Statements of Cash Flows provide a summary of cash inflows and outflows for Viper Energy Partners LP for the years ended December 31, 2022, 2021, and 2020. In 2022, the company generated significant cash from operating activities, partially offset by substantial cash used in financing activities for distributions and debt/unit repurchases, resulting in a net decrease in cash and cash equivalents Consolidated Statements of Cash Flows Highlights (Thousands USD) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $699,796 | $307,114 | $196,556 | | Net cash provided by (used in) investing activities | $47,571 | $(281,176) | $(16,283) | | Net cash provided by (used in) financing activities | $(768,636) | $(5,611) | $(164,754) | | Net increase (decrease) in cash and cash equivalents | $(21,269) | $20,327 | $15,519 | | Cash, cash equivalents and restricted cash at end of period | $18,179 | $39,448 | $19,121 | | Interest paid | $36,868 | $30,784 | $33,121 | | Cash paid (received) for income taxes | $16,990 | $1,050 | $0 | | Common units issued for acquisition (non-cash) | $0 | $336,872 | $0 | [Notes to Consolidated Financial Statements](index=83&type=section&id=Viper%20Energy%20Partners%20LP%20Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the financial statements [1. Organization and Basis of Presentation](index=83&type=section&id=1.%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION) Viper Energy Partners LP is a publicly traded Delaware limited partnership focused on owning and acquiring mineral and royalty interests in oil and natural gas properties primarily in the Permian Basin. Diamondback Energy, Inc. beneficially owns approximately 56% of the Partnership's total limited partner units and controls the General Partner. The consolidated financial statements are prepared in conformity with GAAP - Viper Energy Partners LP is a publicly traded Delaware limited partnership focused on owning and acquiring mineral and royalty interests in oil and natural gas properties primarily in the Permian Basin[404](index=404&type=chunk) - As of December 31, 2022, Diamondback Energy, Inc. beneficially owned approximately **56%** of the Partnership's total limited partner units outstanding and owns and controls the General Partner[405](index=405&type=chunk) - The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States (GAAP), with all material intercompany balances and transactions eliminated in consolidation[406](index=406&type=chunk) [2. Summary of Significant Accounting Policies](index=83&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the significant accounting policies used in preparing the financial statements, including the use of estimates, accounting for cash and cash equivalents, accounts receivable, derivative instruments, revenue recognition, oil and natural gas properties (full cost method), debt issuance costs, related party transactions, accrued liabilities, concentrations, income taxes, non-controlling interest, and recent accounting pronouncements - The preparation of financial statements requires significant management estimates and assumptions, particularly in the volatile oil and natural gas industry, affecting reported assets, liabilities, and disclosures[408](index=408&type=chunk)[409](index=409&type=chunk)[410](index=410&type=chunk) - The Partnership uses the full cost method of accounting for its oil and natural gas properties, capitalizing acquisition, exploration, and development costs, and amortizing them over total proved reserves using the units of production method[422](index=422&type=chunk)[423](index=423&type=chunk) - A quarterly ceiling test limits the book value of proved oil and natural gas properties to the discounted future net revenues from proved reserves. No impairment was recorded in 2022 or 2021, but a **$69.2 million impairment** was recorded in 2020[424](index=424&type=chunk)[454](index=454&type=chunk) - Derivative instruments are recognized on the consolidated balance sheets at fair value and are not designated as hedges, meaning changes in fair value are recognized in the consolidated statements of operations[415](index=415&type=chunk) - Royalty income is recognized when control of oil, natural gas, and natural gas liquids production transfers to the purchaser, net of gathering and transportation deductions, with virtually all pricing tied to a market index[416](index=416&type=chunk)[417](index=417&type=chunk)[439](index=439&type=chunk) Accrued Liabilities (Thousands USD) | Item | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Interest payable | $3,972 | $4,430 | | Ad valorem taxes payable | $12,492 | $6,201 | | Derivatives instruments payable | $1,684 | $8,879 | | Other | $1,452 | $999 | | **Total accrued liabilities** | **$19,600** | **$20,509** | - The Partnership uses the asset and liability method for income taxes, recognizing deferred tax assets and liabilities. A valuation allowance is provided when deferred tax assets are unlikely to be realized. In 2022, a **$49.7 million income tax benefit** was recognized due to a partial release of the valuation allowance[433](index=433&type=chunk)[482](index=482&type=chunk) [3. Revenue from Contracts with Customers](index=87&type=section&id=3.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) This section details the company's revenue recognition policy for royalty income, which is derived from oil, natural gas, and natural gas liquids sales. Revenue is recognized when control of the product transfers to the purchaser, typically at the wellhead or gas processing facility, and is net of gathering and transportation deductions. Pricing is generally tied to market indices - Royalty income is recognized at the point control of the product (oil, natural gas, natural gas liquids) is transferred to the purchaser, based on the Partnership's percentage ownership share of the revenue, net of any deductions for gathering and transportation[417](index=417&type=chunk)[439](index=439&type=chunk) - Virtually all of the pricing provisions in the Partnership's contracts are tied to a market index[416](index=416&type=chunk)[439](index=439&type=chunk) Total Royalty Income by Product Type (Thousands USD) | Product | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Oil income | $667,281 | $397,513 | $217,859 | | Natural gas income | $83,149 | $49,197 | $9,024 | | Natural gas liquids income | $87,546 | $54,824 | $20,098 | | **Total royalty income** | **$837,976** | **$501,534** | **$246,981** | [4. Acquisitions and Divestitures](index=87&type=section&id=4.%20ACQUISITIONS%20AND%20DIVESTITURES) This section details the company's acquisition and divestiture activities for 2022, 2021, and 2020. In 2022, Viper acquired 375 net royalty acres in the Permian Basin for $65.9 million and divested 1,099 net royalty acres across the Midland, Delaware, and Eagle Ford Shale basins for a total of $113.0 million. Significant acquisitions in 2021 included the Swallowtail Acquisition of 2,313 net royalty acres for common units and cash - During 2022, the Partnership acquired **375 net royalty acres** in the Permian Basin from third-party sellers for approximately **$65.9 million**[442](index=442&type=chunk) - In 2022, the Partnership divested **325 net royalty acres** in the Midland Basin for **$29.3 million**, **93 net royalty acres** in the Delaware Basin for **$29.9 million**, and its entire **681 net royalty acre** position in the Eagle Ford Shale for **$53.8 million**[444](index=444&type=chunk)[445](index=445&type=chunk)[446](index=446&type=chunk) - On October 1, 2021, the Partnership acquired **2,313 net royalty acres**, primarily in the Northern Midland Basin, through the Swallowtail Acquisition for approximately **15.25 million common units** and **$225.3 million in cash**[447](index=447&type=chunk) - Additionally, in 2021, the Partnership acquired **392 net royalty acres** in the Permian Basin for approximately **$55.1 million**, and in 2020, it acquired **417 net royalty acres** in the Permian Basin for approximately **$64.2 million**[448](index=448&type=chunk)[449](index=449&type=chunk) [5. Oil and Natural Gas Interests](index=90&type=section&id=5.%20OIL%20AND%20NATURAL%20GAS%20INTERESTS) This section provides a breakdown of the company's oil and natural gas interests, distinguishing between proved and unproved properties, and discusses the application of the full cost method of accounting, including depletion and impairment tests. As of December 31, 2022, net oil and natural gas interests capitalized totaled $2.74 billion, with no impairment recorded in 2022 or 2021 Oil and Natural Gas Interests (Thousands USD) | Item | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Subject to depletion (Proved) | $2,167,598 | $1,873,418 | | Not subject to depletion (Unproved) | $1,297,221 | $1,640,172 | | Gross oil and natural gas interests | $3,464,819 | $3,513,590 | | Accumulated depletion and impairment | $(720,234) | $(599,163) | | **Net oil and natural gas interests capitalized** | **$2,744,585** | **$2,914,427** | - As of December 31, 2022, and 2021, the Partnership had mineral and royalty interests representing **26,315** and **27,027 net royalty acres**, respectively[452](index=452&type=chunk) - Costs associated with unevaluated properties are excluded from the full cost pool until proved reserves are determined, with inclusion expected within eight to ten years[453](index=453&type=chunk) - No impairment on proved oil and natural gas interests was recorded for the years ended December 31, 2022, and 2021. An impairment expense of **$69.2 million** was recorded in 2020 due to declining commodity prices[454](index=454&type=chunk) [6. Debt](index=90&type=section&id=6.%20DEBT) This section details the company's long-term debt, including senior unsecured notes and the revolving credit facility. As of December 31, 2022, total long-term debt was $576.9 million, a decrease from $776.7 million in 2021, primarily due to repurchases of senior notes and net repayments on the credit facility. The revolving credit facility's terms were amended in November 2022 to replace LIBOR with SOFR, and the company remains in compliance with all financial maintenance covenants Long-term Debt (Thousands USD) | Item | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | 5.375% senior unsecured notes due 2027 | $430,350 | $479,938 | | Revolving credit facility | $152,000 | $304,000 | | Unamortized debt issuance costs | $(1,306) | $(1,757) | | Unamortized discount | $(4,149) | $(5,454) | | **Total long-term debt** | **$576,895** | **$776,727** | - During 2022, the Partnership repurchased **$49.6 million principal amount** of its outstanding Notes for **$49.0 million cash**[457](index=457&type=chunk) - As of December 31, 2022, the Operating Company's revolving credit facility had an elected commitment of **$500.0 million**, with **$152.0 million outstanding** and **$348.0 million available**. The weighted average interest rate was **4.22%** in 2022[458](index=458&type=chunk) - On November 18, 2022, the credit agreement was amended to replace the London Interbank Offered Rate (LIBOR) benchmark with the Secured Overnight Financing Rate (SOFR)[459](index=459&type=chunk) - The Operating Company was in compliance with all financial maintenance covenants under its credit agreement as of December 31, 2022, including ratios for total net debt to EBITDAX, current assets to liabilities, and secured debt to EBITDAX[462](index=462&type=chunk) [7. Unitholders' Equity and Distributions](index=91&type=section&id=7.%20UNITHOLDERS%27%20EQUITY%20AND%20DISTRIBUTIONS) This section outlines the company's unitholders' equity structure, including common and Class B units, and details the common unit repurchase program and cash distribution policy. As of December 31, 2022, Diamondback beneficially owned 56% of total units. The company repurchased $150.6 million in common units in 2022, with $529.4 million remaining authorization. The cash distribution policy, updated in 2022, includes base and variable components and excludes one-time payments from available cash calculations - As of December 31, 2022, the Partnership had **73,229,645 common units** and **90,709,946 Class B units** outstanding. Diamondback beneficially owned approximately **56%** of the Partnership's total units outstanding, including all Class B units and Operating Company units exchangeable for common units[463](index=463&type=chunk) - The common unit repurchase program, authorized up to **$750.0 million**, saw repurchases of **$150.6 million** in 2022, **$46.0 million** in 2021, and **$24.0 million** in 2020. As of December 31, 2022, **$529.4 million** remained available[465](index=465&type=chunk) - The cash distribution policy, amended in July and November 2022, consists of a base and variable distribution, taking into account the unit buyback program, and excludes lease bonus payments and other one-time, non-recurring payments from available cash calculations[468](index=468&type=chunk) Cash Distributions Paid (Thousands USD, except per unit amounts) | Period | Amount per Operating Company Unit | Operating Company Distributions to Diamondback | Amount per Common Unit | Common Unitholders | | :--- | :--- | :--- | :--- | :--- | | Q4 2019 | $0.45 | $40,819 | $0.45 | $30,543 | | Q1 2020 | $0.10 | $9,074 | $0.10 | $6,790 | | Q2 2020 | $0.03 | $2,720 | $0.03 | $2,034 | | Q3 2020 | $0.10 | $9,072 | $0.10 | $6,805 | | Q4 2020 | $0.14 | $12,699 | $0.14 | $9,162 | | Q1 2021 | $0.25 | $22,678 | $0.25 | $16,230 | | Q2 2021 | $0.33 | $29,936 | $0.33 | $21,235 | | Q3 2021 | $0.38 | $34,469 | $0.38 | $30,118 | | Q4 2021 | $0.47 | $42,634 | $0.47 | $36,238 | | Q1 2022 | $0.70 | $63,497 | $0.67 | $51,680 | | Q2 2022 | $0.87 | $78,918 | $0.81 | $60,626 | | Q3 2022 | $0.52 | $47,170 | $0.49 | $36,076 | - Special allocations of the Operating Company's income and gains to Diamondback expired on December 31, 2022, which previously reduced taxable income allocated to the Partnership's common unitholders[473](index=473&type=chunk) [8. Earnings Per Common Unit](index=93&type=section&id=8.%20EARNINGS%20PER%20COMMON%20UNIT) This section details the calculation of basic and diluted earnings per common unit using the two-class method, based on net income attributable to the Partnership's common units. For 2022, basic and diluted EPS were $2.00, a significant increase from $0.85 in 2021 and a reversal from a loss of $(2.84) in 2020 - Basic and diluted earnings per common unit are calculated using the two-class method, which allocates earnings proportionally among holders of common units and participating securities[475](index=475&type=chunk) Net Income (Loss) Attributable to Common Unitholders (Thousands USD) | Year | Amount | | :--- | :--- | | 2022 | $151,308 | | 2021 | $57,746 | | 2020 | $(192,348) | Weighted Average Common Units Outstanding (Thousands) | Year | Basic | Diluted | | :--- | :--- | :--- | | 2022 | 75,612 | 75,679 | | 2021 | 68,319 | 68,391 | | 2020 | 67,686 | 67,686 | Net Income (Loss) Per Common Unit | Year | Basic EPS ($) | Diluted EPS ($) | | :--- | :--- | :--- | | 2022 | 2.00 | 2.00 | | 2021 | 0.85 | 0.85 | | 2020 | (2.84) | (2.84) | [9. Income Taxes](index=94&type=section&id=9.%20INCOME%20TAXES) This section details the company's income tax provision, deferred tax assets and liabilities, and the impact of the Inflation Reduction Act of 2022. In 2022, the company recognized a significant income tax benefit of $32.7 million, primarily due to a partial release of its deferred tax asset valuation allowance, reversing an expense from 2021 and 2020. As of December 31, 2022, net deferred tax assets stood at $49.7 million Components of Income Tax Provision (Benefit) (Thousands USD) | Item | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total current income tax provision (benefit) | $17,003 | $1,521 | $0 | | Total deferred income tax provision (benefit) | $(49,656) | $0 | $142,466 | | **Total provision (benefit) from income taxes** | **$(32,653)** | **$1,521** | **$142,466** | | Effective tax rates | (5.2)% | 0.6% | (279.6)% | Deferred Tax Assets and Liabilities (Thousands USD) | Item | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Net operating loss and capital loss carryforwards | $70 | $6,014 | | Investment in the Operating Company | $148,003 | $163,065 | | Total deferred tax assets | $148,073 | $169,079 | | Valuation allowance | $(98,417) | $(169,079) | | **Net deferred tax assets** | **$49,656** | **$0** | - During 2022, the Partnership recognized a discrete income tax benefit of **$49.7 million** due to a partial release of its beginning-of-the-year valuation allowance, based on an improved assessment of deferred tax asset realizability[482](index=482&type=chunk) - The Partnership considered the impact of the CHIPS and Science Act of 2022 and the Inflation Reduction Act of 2022 (IRA) and concluded there was no material impact to its current or deferred income tax balances in the period of enactment[485](index=485&type=chunk) [10. Derivatives](index=96&type=section&id=10.%20DERIVATIVES) This section describes the company's use of derivative instruments (fixed price swap contracts, fixed price basis swap contracts, and costless collars) to manage commodity price volatility. As of December 31, 2022, the company had various oil and natural gas put and basis swap contracts outstanding. The company recorded net losses on derivative instruments in 2022 and 2021, primarily because market prices exceeded strike prices - The Partnership uses fixed price swap contracts, fixed price basis swap contracts, and costless collars (with put and call options) to reduce price volatility associated with its royalty income[487](index=487&type=chunk) - The Partnership is exposed to credit risk from counterparties but does not require collateral as they are participants in the credit agreement[489](index=489&type=chunk) Outstanding Derivative Contracts (as of Dec 31, 2022) | Settlement Month | Settlement Year | Type of Contract | Bbls/Mcf Per Day | Index | Strike Price / Differential | | :--- | :--- | :--- | :--- | :--- | :--- | | OIL | | | | | | | Jan. - Mar. | 2023 | Puts | 12,000 | WTI Cushing | $54.50 | | Apr. - Jun. | 2023 | Puts | 8,000 | WTI Cushing | $55.00 | | Jan. - Dec. | 2023 | Basis Swaps | 4,000 | Argus WTI Midland | $1.05 | | NATURAL GAS | | | | | | | Jan. - Dec. | 2023 | Basis Swaps | 30,000 | Waha Hub | $(1.33) | | Jan. - Dec. | 2024 | Basis Swaps | 2

Financial Data and Key Metrics Changes - The fourth quarter of 2022 marked a record year for the company, with quarterly production setting a record on both an absolute and per unit basis for the third consecutive quarter [6] - The company reduced net debt by $100 million quarter-over-quarter and repurchased approximately 1 million units [7] - A distribution of $0.49 per unit is scheduled, which remains flat quarter-over-quarter despite a 10% decline in oil prices during the same period [10] Business Line Data and Key Metrics Changes - The company generated over $100 million in proceeds from non-core asset sales during 2022, including the sale of the Eagle Ford asset, which produced roughly 250 barrels of oil per day [9] - The company expects to deliver an 8% year-over-year growth in average production for 2023 without spending any capital [8] Market Data and Key Metrics Changes - The company is insulated from inflationary cost pressures due to its high-quality asset base and limited operating costs [11] - The company anticipates a nearly 10% annualized free cash flow yield at a $75 WTI price [11] Company Strategy and Development Direction - The company is focused on growing production without capital expenditures, emphasizing a disciplined capital allocation approach [7][11] - The strategy includes transitioning to 100% Permian assets for higher growth potential, as indicated by the sale of the Eagle Ford asset [17] Management's Comments on Operating Environment and Future Outlook - Management noted that the production growth is expected to pick up in the second half of 2023, driven by the timing of larger Diamondback pads coming online [20][21] - The management expressed confidence in the mineral business's ability to grow despite slower growth rates from parent companies in the basin [17] Other Important Information - The company is actively evaluating the market for potential acquisitions, although the bid-ask spread remains wide for mineral assets [24][25] - The company has not seen significant changes in operational cadence from third-party operators, maintaining steady activity levels [26] Q&A Session Summary Question: Thoughts on shareholder distribution and unit buybacks - Management indicated that unit buybacks are still considered a good use of capital, especially when compared to lower-quality assets available in the market [12][13] Question: Rationale behind the sale of Eagle Ford asset - The management explained that the Eagle Ford asset had limited growth potential compared to the Permian, making it a strategic decision to sell [15][17] Question: Guidance for 2023 and expected growth - Management confirmed that growth is expected to ramp up in the second half of 2023, with specific timing related to Diamondback's activity [19][20] Question: Bid-ask spread in the market - Management noted that the bid-ask spread for mineral assets remains wide, influenced by historical pricing perceptions among mineral owners [24][25] Question: Operational cadence from third-party operators - Management reported steady activity levels and visibility into net wells being turned to production, which is encouraging for future growth [26][27]

Energy Partners Investor Presentation February 2023 Forward Looking Statements This presentation contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding Viper's: future performance; business strategy; future operations; estimates and projections of operating income, losses, costs and expenses, ...

[Glossary of Oil and Natural Gas Terms](index=3&type=section&id=Glossary%20of%20Oil%20and%20Natural%20Gas%20Terms) [Glossary of Certain Other Terms](index=4&type=section&id=Glossary%20of%20Certain%20Other%20Terms) [Cautionary Statement Regarding Forward-Looking Statements](index=5&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) [PART I. FINANCIAL INFORMATION](index=7&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements and detailed notes for the periods ended September 30, 2022 [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects a slight decrease in total assets, a reduction in long-term debt, and an increase in total equity Condensed Consolidated Balance Sheets | Metric | Sep 30, 2022 (In thousands) | Dec 31, 2021 (In thousands) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $11,616 | $39,448 | | Royalty income receivable (net) | $94,215 | $68,568 | | Property, net | $2,810,671 | $2,920,115 | | Long-term debt, net | $669,638 | $776,727 | | Total assets | $2,985,757 | $3,034,021 | | Total equity | $2,290,913 | $2,232,828 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations show substantial year-over-year growth in royalty income and net income driven by favorable commodity prices Condensed Consolidated Statements of Operations | Metric | 3 Months Ended Sep 30, 2022 (In thousands) | 3 Months Ended Sep 30, 2021 (In thousands) | 9 Months Ended Sep 30, 2022 (In thousands) | 9 Months Ended Sep 30, 2021 (In thousands) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Royalty income | $219,909 | $127,649 | $651,828 | $337,619 | | Total operating income | $221,617 | $128,004 | $662,842 | $339,130 | | Net income (loss) | $210,102 | $73,445 | $509,763 | $139,682 | | Net income (loss) attributable to Viper Energy Partners LP | $79,340 | $16,832 | $129,967 | $18,474 | | Basic EPS | $1.06 | $0.26 | $1.70 | $0.28 | [Condensed Consolidated Statements of Changes to Unitholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20to%20Unitholders'%20Equity) This statement details movements in unitholders' equity, reflecting an increase influenced by net income and common unit repurchases Condensed Consolidated Statements of Changes to Unitholders' Equity | Metric | Dec 31, 2021 (In thousands) | Sep 30, 2022 (In thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total equity | $2,232,828 | $2,290,913 | | Common units outstanding | 78,546 | 74,156 | | Repurchased units (9 months ended Sep 30, 2022) | N/A | $(118,932) | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements indicate strong growth in operating cash flow, alongside significant cash used for financing activities Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | 9 Months Ended Sep 30, 2022 (In thousands) | 9 Months Ended Sep 30, 2021 (In thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $513,241 | $199,672 | | Net cash provided by (used in) investing activities | $19,611 | $(6,728) | | Net cash provided by (used in) financing activities | $(560,684) | $(140,525) | | Net increase (decrease) in cash and cash equivalents | $(27,832) | $52,419 | [Condensed Notes to Consolidated Financial Statements](index=12&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) These notes provide essential context for the financial statements, covering accounting policies, acquisitions, debt, and other key details [Note 1. ORGANIZATION AND BASIS OF PRESENTATION](index=12&type=section&id=Note%201.%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION) - Viper Energy Partners LP is a publicly traded Delaware limited partnership focused on owning and acquiring mineral and royalty interests in oil and natural gas properties, primarily in the Permian Basin[28](index=28&type=chunk) - Diamondback Energy, Inc. beneficially owns approximately **55% of the Partnership's total limited partner units** outstanding and controls the General Partner[29](index=29&type=chunk) [Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=Note%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - Management's estimates and assumptions are particularly challenging in the oil and natural gas industry due to **volatility in prices**, influenced by factors such as COVID-19, the war in Ukraine, and OPEC actions[33](index=33&type=chunk)[34](index=34&type=chunk) - Accrued liabilities at September 30, 2022, totaled **$24,173k**, including interest payable ($9,694k), ad valorem taxes payable ($11,075k), and derivative instruments payable ($2,252k)[40](index=40&type=chunk) - No recent accounting pronouncements not yet adopted are expected to have a **material effect** on the Partnership[42](index=42&type=chunk) [Note 3. REVENUE FROM CONTRACTS WITH CUSTOMERS](index=14&type=section&id=Note%203.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) - Royalty income is recognized when control of the product is transferred to the purchaser, based on the Partnership's percentage ownership share of revenue, net of deductions[43](index=43&type=chunk) Royalty Income by Product Type (In thousands) | Product Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Oil income | $167,934 | $100,154 | $514,180 | $272,450 | | Natural gas income | $28,638 | $12,074 | $67,621 | $30,651 | | Natural gas liquids income | $23,337 | $15,421 | $70,027 | $34,518 | | Total royalty income | $219,909 | $127,649 | $651,828 | $337,619 | [Note 4. ACQUISITIONS AND DIVESTITURES](index=15&type=section&id=Note%204.%20ACQUISITIONS%20AND%20DIVESTITURES) - In Q3 2022, the Partnership acquired **165 net royalty acres** in the Permian Basin for approximately **$40.1 million**[45](index=45&type=chunk) - In Q3 2022, the Partnership divested **93 net royalty acres** in the Delaware Basin for an aggregate sales price of **$29.9 million**[46](index=46&type=chunk) - The 2021 Swallowtail Acquisition involved acquiring **2,313 net royalty acres**, primarily in the Northern Midland Basin, for approximately 15.25 million common units and $225.3 million in cash[47](index=47&type=chunk) [Note 5. OIL AND NATURAL GAS INTERESTS](index=16&type=section&id=Note%205.%20OIL%20AND%20NATURAL%20GAS%20INTERESTS) - **No impairment expense** was recorded on the Partnership's oil and natural gas interests for the three and nine months ended September 30, 2022 and 2021, based on quarterly ceiling tests[51](index=51&type=chunk) Oil and Natural Gas Interests (In thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Oil and natural gas interests, gross | $3,493,979 | $3,513,590 | | Accumulated depletion and impairment | $(688,996) | $(599,163) | | Oil and natural gas interests, net | $2,804,983 | $2,914,427 | | Total net royalty acres | 26,789 | 27,027 | [Note 6. DEBT](index=16&type=section&id=Note%206.%20DEBT) - During the nine months ended September 30, 2022, the Partnership repurchased **$49.6 million principal amount** of outstanding Notes for **$49.0 million cash**[53](index=53&type=chunk) - As of September 30, 2022, the Operating Company had **$245.0 million outstanding borrowings** and **$255.0 million available** under its $500.0 million revolving credit facility[54](index=54&type=chunk)[56](index=56&type=chunk) Long-term Debt (In thousands) | Debt Type | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | 5.375% senior unsecured notes due 2027 | $430,350 | $479,938 | | Revolving credit facility | $245,000 | $304,000 | | Total long-term debt | $669,638 | $776,727 | [Note 7. UNITHOLDERS' EQUITY AND DISTRIBUTIONS](index=17&type=section&id=Note%207.%20UNITHOLDERS'%20EQUITY%20AND%20DISTRIBUTIONS) - As of September 30, 2022, Diamondback beneficially owned approximately **55% of the Partnership's total limited partner units** outstanding[57](index=57&type=chunk) - The common unit repurchase program was approved to acquire up to **$750.0 million** of outstanding common units, with **$561.0 million remaining available** as of September 30, 2022[58](index=58&type=chunk) - A new distribution policy, effective Q3 2022, consists of a **base and variable distribution**, taking into account capital returned via the unit buyback program, and excludes one-time lease bonus payments from available cash calculation[59](index=59&type=chunk) [Note 8. EARNINGS PER COMMON UNIT](index=18&type=section&id=Note%208.%20EARNINGS%20PER%20COMMON%20UNIT) Earnings Per Common Unit (In thousands, except per unit amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to the period | $79,340 | $16,832 | $129,967 | $18,474 | | Net income (loss) per common unit, basic | $1.06 | $0.26 | $1.70 | $0.28 | | Net income (loss) per common unit, diluted | $1.06 | $0.26 | $1.70 | $0.28 | [Note 9. INCOME TAXES](index=19&type=section&id=Note%209.%20INCOME%20TAXES) - The Partnership recognized a discrete income tax benefit of **$49.7 million in Q3 2022** due to a partial release of its valuation allowance on deferred tax assets, driven by recent cumulative income and expected future taxable income[69](index=69&type=chunk) - As of September 30, 2022, the Partnership had a deferred tax asset of **$152.7 million** offset by an allowance of **$103.0 million**[69](index=69&type=chunk) Provision for (Benefit from) Income Taxes (In thousands, except for tax rate) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for (benefit from) income taxes | $(46,409) | $906 | $(37,597) | $941 | | Effective tax rate | (28.4)% | 1.2% | (8.0)% | 0.7% | [Note 10. DERIVATIVES](index=20&type=section&id=Note%2010.%20DERIVATIVES) - The Partnership uses fixed price swap contracts, fixed price basis swap contracts, and costless collars to **reduce price volatility** associated with royalty income[74](index=74&type=chunk) - As of September 30, 2022, the Partnership had **costless collars, put options, and basis swaps** outstanding for oil and natural gas[74](index=74&type=chunk)[81](index=81&type=chunk) Gains and Losses on Derivative Instruments (In thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Gain (loss) on derivative instruments | $882 | $(9,599) | $(19,366) | $(70,649) | | Net cash receipts (payments) on derivatives | $(10,263) | $(25,306) | $(27,292) | $(61,188) | [Note 11. FAIR VALUE MEASUREMENTS](index=21&type=section&id=Note%2011.%20FAIR%20VALUE%20MEASUREMENTS) - Derivative contracts are measured internally using **Level 2 inputs** (established commodity futures price strips, notional volumes, and time to maturity)[91](index=91&type=chunk) - The fair value of the revolving credit facility approximates its carrying value (Level 2), while the fair value of the 5.375% senior notes due 2027 is determined using **quoted market prices (Level 1)**[97](index=97&type=chunk) Net Fair Value of Derivative Instruments (In thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Current Derivative assets | $4,686 | $0 | | Non-current Derivative assets | $839 | $0 | | Current Derivative liabilities | $891 | $3,417 | | Non-current Derivative liabilities | $125 | $0 | [Note 12. COMMITMENTS AND CONTINGENCIES](index=23&type=section&id=Note%2012.%20COMMITMENTS%20AND%20CONTINGENCIES) - Management believes that none of the pending legal proceedings, disputes, or claims will have a **material adverse effect** on the Partnership's financial condition, results of operations, or cash flows[100](index=100&type=chunk) [Note 13. SUBSEQUENT EVENTS](index=24&type=section&id=Note%2013.%20SUBSEQUENT%20EVENTS) - On November 3, 2022, a cash distribution for Q3 2022 of **$0.49 per common unit** was approved, consisting of a $0.25 base and a $0.24 variable distribution[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition, operational performance, commodity prices, and liquidity strategies [Overview](index=25&type=section&id=Overview) - Viper Energy Partners LP is a publicly traded Delaware limited partnership focused on owning and acquiring mineral and royalty interests in oil and natural gas properties, primarily in the Permian Basin[105](index=105&type=chunk) - The Partnership operates in one reportable segment and has been treated as a corporation for U.S. federal income tax purposes since May 10, 2018[105](index=105&type=chunk) [Recent Developments](index=25&type=section&id=Recent%20Developments) - Commodity prices for oil, natural gas, and natural gas liquids remain **highly volatile** due to global economic activity, geopolitical events (e.g., war in Ukraine), and OPEC+ actions[106](index=106&type=chunk) - **No impairment** was recorded on proved oil and natural gas interests for Q3 2022, despite average oil price decreases, due to favorable industry conditions[107](index=107&type=chunk) - In Q3 2022, the Partnership acquired **165 net royalty acres for $40.1 million** and divested **93 net royalty acres for $29.9 million**, bringing total net royalty acres to 26,789[108](index=108&type=chunk) - A new distribution policy, effective Q3 2022, includes a **base and variable distribution**, excluding one-time lease bonus payments from available cash calculation[109](index=109&type=chunk) - Third-party operated net wells turned to production in Q3 2022 reached their **highest level since Q2 2019**, with Diamondback-operated full-year 2023 oil production expected to increase by approximately 10% compared to 2022[110](index=110&type=chunk) Gross Well Information (Q3 2022 and as of Oct 20, 2022) | Metric | Diamondback Operated | Third Party Operated | Total | | :------------------------------------------ | :------------------- | :------------------- | :---- | | Horizontal wells turned to production (Q3 2022) | 52 | 221 | 273 | | Horizontal producing well count (as of Oct 20, 2022) | 1,504 | 4,838 | 6,342 | | Horizontal active development well count (as of Oct 20, 2022) | 95 | 475 | 570 | | Line of sight wells (as of Oct 20, 2022) | 166 | 354 | 520 | [Comparison of the Three Months Ended September 30, 2022 and June 30, 2022](index=27&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030%2C%202022%20and%20June%2030%2C%202022) - Total operating income decreased from **$239,322k in Q2 2022 to $221,617k in Q3 2022**[115](index=115&type=chunk) - Royalty income decreased by **$18.9 million QoQ**, primarily due to lower average oil and natural gas liquids prices, partially offset by a **4% increase in production volumes**[119](index=119&type=chunk) - Depletion expense decreased by **$1.5 million (5%)** due to a reduction in the average depletion rate, influenced by higher SEC oil and natural gas prices in reserve calculations[121](index=121&type=chunk) - A gain of **$882k on derivative instruments** was recorded in Q3 2022, compared to a loss of $1,889k in Q2 2022, as market prices decreased below strike prices on open contracts[122](index=122&type=chunk)[123](index=123&type=chunk) - Income tax expense decreased by **$52.6 million QoQ**, primarily due to a partial reduction of the valuation allowance against deferred tax assets and lower pre-tax net income[124](index=124&type=chunk) Production Data (QoQ) | Metric | Q3 2022 | Q2 2022 | Change | | :-------------------------- | :------ | :------ | :----- | | Oil (MBbls) | 1,828 | 1,798 | +30 | | Natural gas (MMcf) | 4,086 | 3,898 | +188 | | Natural gas liquids (MBbls) | 664 | 607 | +57 | | Combined volumes (MBOE) | 3,173 | 3,054 | +119 | | Average daily combined volumes (BOE/d) | 34,489 | 33,560 | +929 | Average Sales Prices (QoQ) | Metric | Q3 2022 | Q2 2022 | Change | | :---------------------- | :------ | :------ | :----- | | Oil ($/Bbl) | $91.87 | $106.34 | -$14.47 | | Natural gas ($/Mcf) | $7.01 | $6.10 | +$0.91 | | Natural gas liquids ($/Bbl) | $35.15 | $39.28 | -$4.13 | | Combined ($/BOE) | $69.31 | $78.20 | -$8.89 | [Comparison of the Nine Months Ended September 30, 2022 and 2021](index=30&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030%2C%202022%20and%202021) - Total operating income increased from **$339,130k in 9M 2021 to $662,842k in 9M 2022**[125](index=125&type=chunk) - Royalty income increased by **$314.2 million YoY**, with $240.9 million attributed to strong commodity prices and $73.3 million to a **23% increase in production volumes**, largely from the Swallowtail Acquisition[129](index=129&type=chunk)[130](index=130&type=chunk) - Lease bonus income increased significantly due to leasing assets acquired in the Swallowtail Acquisition to Diamondback in Q1 2022[131](index=131&type=chunk) - Depletion expense increased by **$15.6 million (21%)** due to production growth, despite a decrease in the average depletion rate from higher SEC oil and natural gas prices[133](index=133&type=chunk) - Net interest expense increased by **$6.0 million** due to higher average outstanding borrowings and interest rates on the revolving credit facility[136](index=136&type=chunk) - A **$37.6 million income tax benefit** in 9M 2022 resulted from a partial reduction in the valuation allowance against deferred tax assets, partially offset by increased current tax expense[137](index=137&type=chunk) Production Data (YoY) | Metric | 9M 2022 | 9M 2021 | Change | | :-------------------------- | :------ | :------ | :----- | | Oil (MBbls) | 5,259 | 4,378 | +881 | | Natural gas (MMcf) | 11,713 | 9,828 | +1,885 | | Natural gas liquids (MBbls) | 1,857 | 1,359 | +498 | | Combined volumes (MBOE) | 9,068 | 7,375 | +1,693 | | Average daily combined volumes (BOE/d) | 33,216 | 27,015 | +6,201 | Average Sales Prices (YoY) | Metric | 9M 2022 | 9M 2021 | Change | | :---------------------- | :------ | :------ | :----- | | Oil ($/Bbl) | $97.77 | $62.23 | +$35.54 | | Natural gas ($/Mcf) | $5.77 | $3.12 | +$2.65 | | Natural gas liquids ($/Bbl) | $37.71 | $25.40 | +$12.31 | | Combined ($/BOE) | $71.88 | $45.78 | +$26.10 | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2022, the Partnership had **$266.6 million in liquidity**, comprising $11.6 million in cash and cash equivalents and $255.0 million available under the Operating Company's credit agreement[138](index=138&type=chunk) - Primary sources of liquidity include cash flows from operations, asset sales, equity and debt offerings, and borrowings under the credit agreement[138](index=138&type=chunk) - Primary uses of cash are distributions to unitholders, debt repayments, capital expenditures for mineral and royalty interests, and common unit repurchases[138](index=138&type=chunk) - **Net cash provided by operating activities significantly increased** during the nine months ended September 30, 2022, driven by higher royalty and lease bonus income and decreased derivative settlements[144](index=144&type=chunk) - Net cash provided by investing activities in 9M 2022 (**$19,611k**) was primarily from divestitures, a shift from net cash used in 9M 2021 ($(6,728)k) which was mainly for acquisitions[145](index=145&type=chunk) - Net cash used in financing activities increased in 9M 2022 (**$560,684k**) due to $333.7 million in distributions, $118.9 million in common unit repurchases, and $49.0 million in senior note repurchases[146](index=146&type=chunk) [Capital Requirements](index=35&type=section&id=Capital%20Requirements) - The common unit repurchase program authorization was increased to **$750.0 million** on July 26, 2022, with **$561.0 million remaining available** as of September 30, 2022[151](index=151&type=chunk) - A cash distribution of **$0.49 per common unit** for Q3 2022 was approved, comprising a $0.25 base and a $0.24 variable dividend[152](index=152&type=chunk) [Critical Accounting Estimates](index=35&type=section&id=Critical%20Accounting%20Estimates) - There have been **no changes** to critical accounting estimates from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[154](index=154&type=chunk) [Recent Accounting Pronouncements](index=35&type=section&id=Recent%20Accounting%20Pronouncements) - No recent accounting pronouncements not yet adopted are expected to have a **material effect** on the Partnership[155](index=155&type=chunk)[42](index=42&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section outlines the company's exposure to commodity price and interest rate risks and details the strategies used to manage them [Commodity Price Risk](index=35&type=section&id=Commodity%20Price%20Risk) - The Partnership's major market risk exposure is to the **volatile pricing of oil and natural gas** production, influenced by global economic and geopolitical factors[157](index=157&type=chunk)[158](index=158&type=chunk) - The Partnership uses fixed price swap contracts, fixed price basis swap contracts, and costless collars with put and call options to **reduce price volatility**[159](index=159&type=chunk) - As of September 30, 2022, a **10% increase in forward curves** would increase the net asset derivative position by $0.6 million to $5.1 million, while a **10% decrease** would reduce it by $0.3 million to $4.2 million[160](index=160&type=chunk) [Credit Risk](index=36&type=section&id=Credit%20Risk) - The Partnership is exposed to credit risk due to the **concentration of royalty income and receivables** with a limited number of significant purchasers and producers, without requiring collateral[161](index=161&type=chunk) [Interest Rate Risk](index=36&type=section&id=Interest%20Rate%20Risk) - The Partnership is subject to market risk from changes in interest rates on its indebtedness under the Operating Company's revolving credit facility, which carries a **floating rate**[162](index=162&type=chunk) - The weighted average interest rate on the revolving credit facility was **4.75%** for the three months and **3.53%** for the nine months ended September 30, 2022[162](index=162&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective and reported no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were **effective** as of September 30, 2022[164](index=164&type=chunk) - There were **no material changes** in internal control over financial reporting during the quarter ended September 30, 2022[165](index=165&type=chunk) [PART II. OTHER INFORMATION](index=38&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) Management assesses that pending legal proceedings will not have a material adverse effect on the company's financial condition - The Partnership is involved in routine litigation, disputes, and claims arising in the ordinary course of business[167](index=167&type=chunk) - Management believes that none of the pending matters, if decided adversely, will have a **material adverse effect** on the Partnership's financial condition, results of operations, or cash flows[167](index=167&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section states that no material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K - The business faces many risks, as discussed in the Annual Report on Form 10-K for the year ended December 31, 2021, and subsequent Quarterly Reports on Form 10-Q[168](index=168&type=chunk)[169](index=169&type=chunk) - There have been **no material changes** in the Partnership's risk factors from those previously described[169](index=169&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details common unit repurchase activity for the quarter and confirms no unregistered sales of equity securities occurred - There were **no unregistered sales of equity securities** during the period[170](index=170&type=chunk) - On July 26, 2022, the common unit repurchase program authorization was increased from $250.0 million to **$750.0 million**[173](index=173&type=chunk) Common Unit Repurchase Activity (Three Months Ended September 30, 2022) | Period | Total Number of Units Purchased | Average Price Paid Per Unit | Approximate Dollar Value of Units that May Yet Be Purchased Under the Plan (In thousands) | | :-------------------------------- | :---------------------------- | :-------------------------- | :------------------------------------------------------------------------------------ | | July 1, 2022 - July 31, 2022 | 760,000 | $26.51 | $591,618 | | August 1, 2022 - August 31, 2022 | 529,972 | $29.37 | $576,050 | | September 1, 2022 - September 30, 2022 | 527,745 | $28.44 | $561,043 | | Total | 1,817,717 | $27.91 | | [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of all exhibits filed with the Form 10-Q, including agreements and certifications - Exhibits include the Purchase and Sale Agreement, Certificate of Limited Partnership, Amended and Restated Agreement of Limited Partnership, and various amendments[174](index=174&type=chunk) - Certifications of the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1) are filed herewith[174](index=174&type=chunk)[175](index=175&type=chunk) - The financial information from the Quarterly Report is formatted in **Inline XBRL** as Exhibit 101[174](index=174&type=chunk) [Signatures](index=40&type=section&id=Signatures) This section contains the official signatures of the Chief Executive Officer and Chief Financial Officer, certifying the Form 10-Q report - The report was duly signed on November 8, 2022, by Travis D. Stice, Chief Executive Officer, and Teresa L. Dick, Chief Financial Officer, on behalf of Viper Energy Partners GP LLC, its General Partner[178](index=178&type=chunk)[179](index=179&type=chunk)